But he warned that in the past month, there has also been "continued confrontation and fighting, as the human toll of war continues to rise."
"The dangerous prospect of annexation by Israel of parts of the occupied West Bank is a growing threat," Mladenov said, warning that such a move would violate international law.
The envoy said annexation would also "deal a devastating blow to the two-state solution, close the door to a renewal of negotiations, and threaten efforts to advance regional peace."
A peace plan unveiled earlier this year by US President Donald Trump - which was rejected by the Palestinians and condemned by much of the international community - gave Israel the green light to annex Jewish settlements and other strategic territory in the occupied West Bank. Israeli Prime Minister Benjamin Netanyahu and parliament speaker Benny Gantz struck a power-sharing deal this week, after three inconclusive elections in less than a year.
Netanyahu has heralded the Trump plan as a historic opportunity for Israel but Gantz has been more cautious. Mladenov called on Israeli and Palestinian leaders to "seize this moment to take steps towards peace."
He also urged them to "reject unilateral moves that will only deepen the wedge between the two peoples and undermine the chances for peace."